One of those little coincidences we discovered in writing Nine Shift is that the stock market has followed the same direction and slope as it did before and after the turn of the century 100 years ago. Keeping in mind that they celebrated the new century on Jan. 1, 1901, not Jan. 1, 2000, as we did.
The market rose in 2004 (as we predicted), just like it did 100 years ago. If the history continues:
- the market will end 2005 about the same as it started, a little up or down but not much different.
- a huge decline will occur in 2006.
There are plenty of causes for a big stock market decline:
* All time high trade deficits
* Decline of the dollar
* Highest federal budget deficit ever
* Credit card debt continues to soar
* A natural disaster in Japan (the economist suggesting this one says that the Japanese would take their money out of the U.S. to rebuild their infrastructure).
* The housing bubble bursts.
The last one is real interesting. One economist calls U.S. home mortgages a "huge ATM machine" for consumers. So, if your home's value is suddenly cut in half, could you:
- Sell it for less money than your outstanding mortgage?
- Continue to pay the mortgage?
- Pay a higher monthly payment if interest rates go up, or your variable rate soars?
The reason we suggest the Dow Jones Average is behaving like it did 100 years ago is that the Internet is changing our economy today in the same way, with the same repercussions, as the auto changed the economy 100 years ago. In which case
Stay tuned. The Panic of 1907 is coming again.
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